Fed president calls for more regulation

NEW YORK (CNNMoney) -- Chicago Fed President Charles Evans made his case for more government regulation of the financial system before a room full of economists Friday.

"As policymakers and regulators begin the process of building a more stable financial system, it is clear that we cannot rely on a single line of defense but instead need a series of safeguards," he said at a conference organized by the Levy Economics Institute of Bard College.

Among his proposals, Evans wants banks to be forced to hold a higher portion of their assets on the sidelines, to back up the riskiness of their bets.

Expressing his support for the Dodd-Frank reforms already passed last year, Evans advocated for further measures including a clearinghouse for over-the-counter derivatives and stronger underwriting standards for mortgages.

"All of these measures are relatively simple to implement, and don't rely on regulators having perfect information -- or perfect wisdom," he said.

Speaking later at the same conference, FDIC chairwoman Sheila Bair also underlined the need for reform and threw her support behind Dodd-Frank implementation.

"The Dodd-Frank reforms can -- if properly implemented -- restore market discipline, better align incentives, improve regulation and greatly reduce the frequency and severity of future crises. This we must do," she said.

Evans shrugged off concerns that impressive stock market gains are signaling a bubble is currently in the works.

"Are these developments evidence of an incipient bubble? I don't think so," he said.

Even so, preventing bubbles and targeting specific asset classes like stocks is not part of the Federal Reserve's two job responsibilities of keeping overall prices stable and maximizing employment, he said.

"Even if the Fed could accurately detect a bubble in real time ... monetary policy is too blunt an instrument for this task," he said.

Inflation under control

Considered an inflation dove like Federal Reserve Chairman Ben Bernanke, Evans is currently a voting member of the Fed's policymaking committee, which is next scheduled to meet on April 26-27.

"As I talk to business people, this does not seem to be an environment where strong wage growth is likely... it would be very unusual for inflation to rise substantially without accompanying wage growth," he said.

Last fall, the Fed launched a plan to stimulate the economy by purchasing $600 billion in assets, which Evans supported. The plan, known as quantitative easing, or QE2 because it is the second round of such purchases, is set to end in June.

"I thought $600 billion was a good start on what could well have been a longer program," said Evans.

Evans now thinks the current $600 billion is an appropriate amount because the economy is improving, though he acknowledged some "continued unevenness" in the recovery. He still expects economic growth to reach 4% in the second half of this year and in 2012.

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